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| Recorded pension expenditures are not always influenced by actuarial computations. | |||||||||||||||||
| Hayward City maintains a defined benefit pension plan for its employees. In a recent year the city contributed $5 million to its pension fund. | |||||||||||||||||
| However, its annual pension cost as calculated by its actuary was $7 million. The city accounts for the pension contributions in a governmental fund. | |||||||||||||||||
| 1. Record the pension expenditure in the appropriate fund. | |||||||||||||||||
| 2. Suppose in the following year the city contributed $6 million to its pension fund, but its annual pension cost per its actuary was only $5 million. Prepare the appropriate journal entries. | |||||||||||||||||
| 3. Briefly justify why you did, or did not, take into account the pension cost as calculated by the actuary. | |||||||||||||||||
Granof, M. H., Khumawala, S.B., Calabrese, T.D., Smith, D.L. (2016) Government and Not-For-Profit Accounting: Concepts and Practices, 7th Edition. Hoboken, NJ: John Wiley & Sons – Chapter 10
Expert Answer
| Journal Entries | |||
| Date | Explanation | Debit | Credit |
| 1- | pension expenditure | 5000000 | |
| cash | 5000000 | ||
| 2- | pension expenditure | 6000000 | |
| cash | 6000000 | ||
| 3- | The excess of pension cost over pension contribution (an obligation) would not be recorded in any governmental fund. Since governmental funds are on the modified accrual basis, the reported expenditure is the amount contributed to the pension fund. The difference between the pension expenditure and the annual pension cost is reported on the government-wide statement of net assets and in the schedule of long-term liabilities. |
